Shares of UiPath (PATH 0.85%) hit their all-time high just weeks after the stock made its market debut in 2021. Since then, it has fallen around 79%, leading opportunistic investors to wonder if it's an overlooked bargain.
UiPath is a leader in the rapidly growing market for robotic process automation. In a nutshell, its software allows businesses to identify and automate repetitive tasks so office workers can spend more time adding value to their organizations.
Is UiPath a good stock to buy at its beaten-down price? Let's look at what bullish investors have to say before considering the bearish arguments.
What bulls say about UiPath
UiPath might not brand itself as an artificial intelligence (AI) business, but it could. For years, its automation software has had the power to understand what's on employees' screens, mine tasks for automation opportunities, and process documents.
With plenty of engineers well versed in AI applications, UiPath is rapidly adding generative AI functions. For example, its new OpenAI connector allows businesses to employ ChatGPT and related models to pre-write responses to customer inquiries.
Investors can reasonably expect UiPath to continue delivering access to the generative AI applications that potential clients are most interested in. Rather than place a huge bet on Microsoft and OpenAI, UiPath recently announced support for large language models from Amazon and Alphabet.
Investors will be glad to know that not branding itself as an AI business hasn't hampered UiPath's financial performance. Sales during the fiscal first quarter, which ended on April 30, rose 18% year over year, and the company's gross profit margin of around 84% over the past 12 months suggests it has significant pricing power.
Over the same time frame, C3.ai, an enterprise AI company that also helps with process automation, reported sales that didn't budge and a gross margin that declined sharply.
There are a lot of ins and outs when it comes to interpreting C3.ai's recent revenue performance. Nearly a year ago, the company switched from a subscription-based pricing model to consumption-based pricing. UiPath still markets pre-packaged subscription-based plans, but this hasn't prevented it from gaining market share and maintaining an impressive gross margin.
According to generally accepted accounting principles (GAAP), UiPath is still losing money, but it is approaching profitability. Management expects adjusted operating income to reach $168 million during its fiscal 2024, which ends next January.
What the bears say about UiPath
It might be approaching profitability, but UiPath isn't there yet. The company lost $31.9 million during the three months ended April 30.
Shares have been trading for around 8.9 times trailing sales. If the company can't retain some sales as earnings on a GAAP basis by the end of the year, nervous investors could lose faith and cause the stock price to fall hard.
Time to buy?
According to Gartner, the overall market for robotic process automation is already worth more than $93 billion annually. At the moment, UiPath's platform addresses more than two-thirds of this space, but its sales team has hardly scraped the surface. Fiscal first-quarter revenue came in at an annualized $1.2 billion.
UiPath doesn't have the right buzzword in its name at the moment, but savvy investors know it's a top AI stock to buy now. The company's bots can mine tasks for automatable activity, read documents, and understand user interfaces. None of this functionality would be possible without a deep understanding of AI-related processes from its engineering staff.
UiPath's support for large language models from not one, but all of the cloud industry's largest players means it won't have to bet on a winner to keep subscribers from jumping ship. Buying the stock now and holding on for the long run looks like a smart move for most investors.